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Counterfeit Products, Section 846 Implementation, and the Appearance of Ghost Pilots

This month, the President issued a Policy Memorandum, titled, “Memorandum on Combating Trafficking in Counterfeit and Pirated Goods,” to address what the Administration perceives to be an uncontrolled buying environment that permits the flow of counterfeit products to unknowing consumers. As many of you will recall, counterfeit products has been a point of concern raised by the Coalition on several occasions regarding the implementation of Section 846 of the Fiscal Year (FY) 2018 National Defense Authorization Act (NDAA).[1] The Memorandum, however, crystalizes these concerns, and, in light of the ongoing developments, should prompt reconsideration of potentially high-risk behavior by agencies seeking to implement e-Commerce initiatives.

The Presidential Memorandum asserts the government’s goal to prevent counterfeit and pirated goods from being manufactured, imported, or sold. To this end, it calls for expanding government efforts, “to deter online trafficking in counterfeit and pirated goods through third-party intermediaries… .” In addition, the Memorandum acknowledges that third-party intermediaries:

“including online third-party marketplaces, carriers, customs brokers, payment providers, vendors, and others involved in international transactions, can all be beneficial partners in combating trafficking in counterfeit and pirated goods.”

It also recognizes that, to combat the problem, coordination between the government and the private sector is needed. In the absence of comprehensive data regarding this illicit trafficking, the Memorandum calls for additional analysis and examination, including the identification of the processes utilized by traffickers (like shipping and order fulfillment), effective methods for stopping the importation and sale of illicit goods, and the effectiveness of current Federal efforts to detect and avoid illicit goods. In addition, among other things, the Memorandum calls for a report that:

  • Identifies, “appropriate guidance that agencies may provide to third-party intermediaries to help them prevent the importation and sale of counterfeit and pirated goods”
  • Identifies, “appropriate administrative, regulatory, legislative, or policy changes” to promote sharing information on counterfeit and pirated goods with stakeholders, like agencies, rights holders, consumers, and third-party intermediaries
  • Makes, “recommendations for more effective detection, interdiction, investigation, and prosecution regarding trafficking in counterfeit and pirated goods, including trafficking through online third-party marketplaces and other third-party intermediaries. …”

As readers may recall, the Coalition has expressed concerns about the integrity of products offered and purchased through the e-Commerce channels envisioned by Section 846. Specifically, those concerns include, but are not limited to:

  • Lack of clarity concerning any specific requirements or restrictions to address cyber and supply chain risks, especially in the face of increasing supply chain security concerns manifested in recent legislation
  • Allowing products to be purchased from non-WTO GPA countries, i.e., non-designated countries under the Trade Agreements Act, like China, raising the specter of shifting the burden of product compliance and integrity review to government purchasers
  • The potential for e-Commerce portals to increase gray market purchases by the Federal Government, a significant concern considering the Government Accountability Office’s (GAO) observation that the proliferation of e-Commerce itself has contributed to increased purchases of counterfeit items.[2]

Like other stakeholders, the Coalition hopes that these significant issues will be addressed in GSA’s Phase II Implementation Plan for Section 846, which is anticipated to be released by the end of April.

Although we applaud the Administration for seeking to put protections in place to address counterfeit products, certain agency actions prompt concerns and questions regarding the coordination of effort across government. Specifically, in addition to the implementation of Section 846, agencies, like DHS and the Air Force, have set out on their own to pilot e-Commerce solutions. Putting aside the question of whether full and open competition requirements are being followed by these “ghost pilots,” it is not clear whether these activities are aligned with Section 846, the President’s Memorandum, or recent regulatory and statutory provisions addressing cybersecurity and supply chain risks. Stakeholder understanding of these ghost pilots could be enhanced if agencies shared their justifications for creating these potentially duplicative channels. Likewise, it would be helpful to know whether these ghost pilots present vendors with conflicting requirements for the same products in the government space, and, if they do, the impact of those requirements on their cost of doing business with the government, and the government’s overarching costs. So too, information about the level of coordination with agency- or government-wide initiatives would assist vendors in understanding the continuity of policy across the government space and assure that a common mission is being followed.

The continuously evolving risks associated with cybersecurity, supply chain integrity, and counterfeit products suggest that the government’s statutory and regulatory environment in response to those risks, to some extent, will also evolve. Such an environment calls for coordination to reduce the number of potential channels for harm or illicit product trafficking. Perhaps there is a rationale and utility for the government associated with these e-Commerce ghost pilots, but, at this juncture, information about them is limited. That fact, and the potential risk, should prompt the scrutiny of overseers to assure that the construct, economics, and implementation of these ghost pilots do not increase harm to government missions or the nation overall.

[1] Pursuant to of Section 846 of the FY 2018 NDAA, GSA is responsible for establishing and managing an e-Commerce portal program described under the statute. In March 2018, GSA, in consultation with the Office of Management and Budget (OMB), issued the Section 846 implementation plan, “Procurement Through Commercial E-Commerce Portals.” The implementation plan is the end-product of Phase I of GSA’s Section 846 implementation efforts which focused on information gathering and analysis. Currently, GSA is in Phase II of Section 846 implementation focused on market research that will support the agency’s Phase III efforts to develop and implement e-Commerce procurement guidance. GSA’s Phase II report is expected to be released in March 2019.

[2] GAO 18-216 “Agencies Can Improve Efforts to Address Risks Posed by Changing Counterfeits Market.”

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